Housebuilders set to join the superleague

The housebuilding industry may start winning hearts and minds in the City if the largest players can break into the FTSE 100 – and one or two are almost there

They Were so close, they could smell it.

Every three months, a FTSE committee meets to decide who from the top 250 companies should be promoted to the industrial elite. There are at present no housebuilders in the top 100, although building materials firms Hanson and Wolseley have made it. This time, Persimmon and Wimpey missed the cut by the skin of their teeth. Persimmon, with a market capitalisation of £2bn, was adjudged the UK's 102nd largest company.

Nevertheless, it seems a good bet that one or other of them could make the top 100 this year, thereby gaining access to more capital and adding a touch of glamour to the sector.

Tony Pidgley, founder and chief executive of Berkeley Group, is not alone when he says: "Some of the bigger housebuilders will be very close if they keep growing by acquisition; a couple are only one buy away."

Paul Pedley, chief executive of Redrow, adds that housebuilders have started to show proof that they run commercially sustainable businesses. The City has long worried that the industry will repeat the journey from riches to rags it undertook in the late 1980s.

But Pedley warns that the problem for the big housebuilders is that they do not automatically enter the FTSE 100, even if they are one of the 100 largest companies. To prevent volatility, firms are only allowed in once they have entered the top 90, and only those that have fallen out of the top 110 are demoted.

The market cannot ignore housebuilders

Leslie Kent, analyst, JM Finn

As a result, established FTSE 100 company Bradford & Bingley has a lower market capitalisation than Persimmon, at £1.87bn, but remains in the FTSE 100, whereas Persimmon needs to grow a further £400m to break in.

Although still a stretch away from the premiership, housebuilders are starting to be noticed again. Mike Betts at JP Morgan Chase has not followed the sector for a decade, but is planning to analyse the biggest housebuilders again.

Leslie Kent, an analyst at JM Finn, points out that housebuilders should long have been considered among the country's best firms. Kent points out that Wimpey made a pre-tax profit of nearly £380m in 2003, far more than many FTSE 100 firms.